Forthright (Wales) Ltd v Davies (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 23 September 2003 |
| Date | 23 September 2003 |
| Court | Special Commissioners (UK) |
special commissioners decision
Dr John F Avery Jones.
Louise Rippon (instructed by Hayvenhursts Ltd, chartered accountants) for the appellant.
The inspector of taxes in person.
1. This is an appeal by Forthright (Wales) Ltd against the refusal by the inspector to issue certificates to investors in the appellant entitling them to claim enterprise investment relief pursuant toIncome and Corporation Taxes Act 1988 section 306s. 306 of the Income and Corporation Taxes Act 1988. The appellant was represented by Ms Louise Rippon and the inspector by Mr Colin Williams.
2. The issues in this appeal are first whether it is necessary for there to be an enquiry followed by a closure notice for the certificate to be refused, and secondly whether the issue of shares in the appellant qualifies under the enterprise investment scheme, in particular whether the money raised was used for a qualifying business activity. The inspector had considered that the appellant company was not carrying on a qualifying business activity on two grounds: that part of the funds were used to pay liabilities taken over when it acquired the trade, and part had been used to pay dividends. During the hearing the first point was conceded, leaving only the dividend point to be decided.
3. There was a statement of agreed facts and issues as follows:
-
(2) The appellant company was incorporated on 23 February 1998.
-
(3) The appellant company acquired the trade and assets of Forthright Management Services Ltd.
-
(4) The appellant company commenced trading in the UK on 3 April 1998 supplying management services to Bartons, chartered accountants, which is a qualifying trade for the purposes of the EIS relief provisions, on the same terms as previously used by Forthright Management Services Ltd.
-
(5) The liabilities taken over by the appellant company from Forthright Management Services Ltd were:
Loan from P T Felman Management Services Ltd
£69,446
Loan from Bartons Ltd
£87,500
Bank overdraft
£4,100
-
(6) On 3 April 1998 the appellant company made a share issue raising £299,998.
-
(7) These funds were used to pay or repay:
Trade expenses
£81,350
Liabilities taken over from Forthright Management Services Ltd
£161,046
Dividends and advance corporation tax
£57,602
-
(8) On 10 November 1998 the appellant company submitted Form EIS 1 to the Inland Revenue, requesting authority to issue certificates to the investors under the provisions of Income and Corporation Taxes Act 1988 section 306s. 306 of ICTA 1988.
-
(9) On 28 March 2000 Mr A L Davies, HM Inspector of Taxes, issued a formal notice of decision refusing to give the required authority, on the grounds that the funds raised by the share issue were not used for the purposes of a qualifying business activity.
-
(10) On 29 March 2000 the appellant company appealed against that decision, claiming that it was bad in law.
4. On the first issue, Income and Corporation Taxes Act 1988 section 306 subsec-or-para 10s. 306(10) provides:
For the purposes of the provisions of the Management Act [i.e. the Taxes Management Act 1970] relating to appeals against decisions of claims, the refusal of the inspector to authorise the issue of a certificate under subsection (2) above shall be taken to be a decision refusing a claim made by the company.
5. Miss Rippon contends that this provision incorporates the procedure in Sch. 1A to the Taxes Management Act 1970 under which a closure notice must either allow a claim or disallow it wholly or to such extent as appears to the officer appropriate (para. 7(3)), and an appeal is against the conclusion stated in the closure notice (para. 9). Here there had been no enquiry started under para. 5 (and the inspector is now out of time for starting one) and so there cannot be any closure notice, and so she contends that the claim must be admitted.
6. Mr Williams contends that the refusal to give the certificate is not a claim and is not deemed to be a claim. All the section says is that for the purposes of the appeal provisions there shall be taken to be a decision refusing a claim, which is a means of allowing the taxpayer to appeal.
7. There is now no appeal against refusal of a claim as such, butIncome and Corporation Taxes Act 1988 schedule 1A subsec-or-para 9para. 9 of Sch. 1A provides:
An appeal may be brought against-
-
(a) …
-
(b) any decision contained in a closure notice under paragraph 7(3) above.
It therefore assumes that a decision to refuse a claim will be contained in a closure notice. The time limit for appealing is given in subs. (1A) by reference to the date of the closure notice. I was not taken to the legislation in force at the time Income and Corporation Taxes Act 1988 section 306 subsec-or-para 10s. 306(10) was first enacted but it appears that until the Finance Act 1994 an appeal lay against the decision on a claim (see the originalTaxes Management Act 1970 section 42s. 42 of theTaxes Management Act 1970). Section 306(10) may not have kept up with the changes resulting from self-assessment. Miss Rippon's point therefore has some force on a strict reading of the legislation. I am not sure however that if she is right it would follow that the certificate must be issued as the inspector can no longer start an enquiry that could lead to a closure notice; it might equally be that the taxpayer has no right of appeal. The purpose of the provision is stated: it is "for the purposes of the provisions of the Management Act relating to appeals against decisions of claims". It seems to me that I should give effect to the purpose of the legislature that there should be a right of appeal against the refusal to give the certificate.Income and Corporation Taxes Act 1988 section 306 subsec-or-para 1Section 306(1) provides that the decision not to issue the certificate shall be taken to be a decision refusing a claim. If there had been...
To continue reading
Request your trial
-
4Cast Limited v Robert Arbuckle Mitchell
(H M Inspectot of Taxes), SPC 00455
...743 Morgan v Tate & Lyle (1954) 35 TC 367 Joseph Thompson & sons Ltd v Chamberlain (1962) 40 TC 657 Forthright (Wales) Ltd v Davies [2004] STC (SCD) 35 Strong v Woodifield [1906] AC 448 3 ...